Shares drop as earnings jitters take hold

Markets reporter

Australian shares got swept up in a global share sell-off on Wednesday, taking their biggest daily tumble in more than seven weeks.

The benchmark S&P/ASX 200 Index fell 1.1 per cent, on Wednesday to 5452.5 points, while the broader All Ordinaries Index shed 1 per cent to 5442.2 points, as Chinese inflation and local consumer confidence data disappointed.

Local shares took a negative lead from Wall St after the S&P 500 and Dow Jones Industrial Average each lost 0.7 per cent on Tuesday night. Nerves are building that equity markets in the United States are set for a dip if company earnings disappoint heading into the US reporting season in the weeks ahead.

“The only time US equities have traded on a higher average price to sales ratio in the past 25 years was in the lead up to the dot com bust,” Wingate Asset Management chief investment officer Chad Padowitz said.

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Falls in major markets around Asia continued to weigh on sentiment in the afternoon session. When the local market closed Hong Kong’s Hang Seng was tracking 1.5 per cent lower following the release of data that showed weaker than expected inflation in China. Chinese inflation, as measured by the official consumer price index, lifted 2.3 per cent in the year to June. The market had been tipping an annual inflation reading of 2.5 per cent.

Despite consensus expectations that the local equity market will post a third consecutive year of gains in fiscal 2015,a growing number of fund managers are tipping a market correction on the horizon in the coming months.

“The volatility index is currently at lows not seen since the height of the global financial crisis in 2008 and if that does not ring alarm bells for people I don’t know what will,” Altius Asset Management portfolio manager Chris Dickman said.

On Wednesday, renewed negative sentiment about the outlook for China weighed on the biggest commodity exporters. Resources giant BHP Billiton lost 0.9 per cent to $37.25, while mining rival Rio Tinto shed 0.4 per cent to $62.14.

The spot price of iron ore lifted 0.6 per cent before the market opened to $US96.50 per tonne, delivered in China. But when the ASX closed iron ore futures trading in China was tipping a dip in the spot price overnight.

In domestic economic news, a closely watched monthly survey of consumer confidence lifted off the recent lows recorded following the federal budget announcement in May. The Westpac - Melbourne Institute consumer sentiment index rose 1.9 per cent to 94.9 points in July. Market economists were generally disappointed that there has not been a stronger rebound in consumer confidence.

In company news, adult education and training provider Navitas was a heavy weight on the bourse, plummeting 31 per cent to a 15-month low of $4.86 after revealing key customer Macquarie University will end the 18 year relationship to launch its own in-house pathway program.

The big four lenders were all lower. Commonwealth Bank of Australia lost 0.7 per cent to $80.79, while Westpac Banking Corp shed 1.1 per cent to $33.85. ANZ Banking Group fell 1.2 per cent to $33.18, and National Australia Bank declined 1 per cent to $33.27.

Among other major stocks Telstra Corp fell 0.6 per cent to $5.29, Woolworths dipped 1.2 per cent to $35.89, and Wesfarmers lost 0.9 per cent to $42.63.

Shares in Scentre Group, the entity spun out of the Westfield empire focused on its local shopping mall assets rose 0.3 per cent to $3.21 after the company launched a €2 billion ($2.9 billion) bond issue on Tuesday.

Junior goldminer Northern Star Resources was the top stock in the ASX 200, climbing 14 per cent to $1.51 after beating quarterly production guidance.